Skip to main content

Sound Advice: May 19, 2021

Sell in May and Go Away? 

Thank our British cousins for the thought that it’s best to pull up one’s investment stakes in May and come back in the fall.  It harkens back to the custom of businesspeople leaving London and going off to the countryside during the warmer summer months.  Over extended periods of years, the data supports this idea, though the results, especially most recently, have been mixed.

To get a clearer view of how this works, I tallied the results of the Dow Jones Industrial Average from May 1st to October 31st and from November 1st to April 30th for every year from 1950 to 2020.  The numbers appear to be compelling.

During the May thru October span, on average, the gains averaged a paltry 0.3%.  But if you reinvested from November thru April, the typical advance was 7.3%.  No brainer, right?

Wrong?

It turns out that the results over the latest six years didn’t follow the pattern.  In 2016, 2018, and 2020, the market’s summer months were far stronger.

If we look at the long-term results by calendar quarter, there’s a similar pattern, with a slight difference.  Prior to 2020, the strongest quarters were October to December and January to March.  On average for the latest 55 years, the market rose by an average of 6.3% during that half of the year, compared with an increase of only 1.7% in the weaker quarters.

The slight difference is attributable to last year’s first-quarter plunge and the massive second-quarter rebound, which raised the long-term average for the latter period by 0.5%, placing it in line with the first calendar quarter.  That, however, was an aberration, not a shift in seasonal patterns. 

No matter how this is seen, it is clear that the market’s seasonal strength is skewed toward the colder months.  And its seasonal weakness tends to be most pronounced in late summer, early fall.

Given that observation, it’s interesting to see what happened after substantial downturns at that time of year.  Since 1965, there have been 15 third-quarter market drops of 5.0% or more.  Those pullbacks averaged 12.2%. 

Yet in the quarters directly following, 13 out of 15 showed sizable gains, averaging 7.5%, not enough to offset the prior loss, but enough to demonstrate that strength follows weakness.

Equally clear is the reality that, over time, the path of least resistance is higher.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com


Any questions? Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: September 30, 2026

Now what? For many women, there comes a time when financial confusion reigns.   It may come after a spouse passes or a marriage goes off the rails.   It’s the same situation for women who never married. The questions are many.   The answers may be few.   Toward the top of the list of concerns is the issue of understanding.   Although there are always complex matters, it’s essential that all of the elements are clearly presented in a straightforward fashion.   There’s more.   Presentation is one thing, but comprehension is another. If there’s a question, it must be asked.   Clarity is the key.   Don’t just say I get it when you don’t.   And, it’s essential to grasp how each of the items fits in the overall situation. In the absence of understanding, no decisions will be made. Here are some of the most pressing questions? What’s the smart way to handle my investments? Where should I go for advice? A bank, stockbroker, attor...
Post a Comment
Read more

Sound Advice: September 19, 2026

Is AI good news or bad news for investments? AI is potentially very good news for investors—but not automatically good news for every investment . The key distinction is between AI as an economic technology and AI stocks at today's prices . As of September 2026, there are compelling reasons for both optimism and caution: The bullish case: AI spending remains enormous. Gartner estimates global AI spending at $2.7 trillion in 2026 , up 49.5% year over year. If AI produces sustained productivity gains, corporate profits could expand well beyond the companies currently selling AI hardware. The valuation case: Investors have already priced in a lot of success. Valuations of major AI companies are elevated and expected long-term earnings growth is well above historical norms. The spending-risk case: The five largest hyperscalers are expected to spend more than $1 trillion on AI-related capital expendit...
Post a Comment
Read more

Sound Advice: October 14, 2026

Why your adviser must be a fiduciary   You should insist that your financial adviser be a fiduciary because a fiduciary is legally obligated, when acting in a fiduciary capacity, to put your interests ahead of their own and manage conflicts of interest appropriately. Key reasons: Your interests come first. A fiduciary duty requires the adviser to act in your best interest rather than simply recommending something that is suitable or profitable for them. Fewer conflicts of interest. Some advisers can receive commissions, bonuses, or other compensation for recommending particular investments or insurance products. A fiduciary must address material conflicts rather than allowing them to drive the recommendation. Greater transparency. Fiduciary advisers generally have obligations concerning disclosure, fees, conflicts, and how they are compensated. That makes it easier for you to understand what you're actually paying. Better alignment over the long term. A good adviser sh...
Post a Comment
Read more